Spread Trading Systems

Spread trading systems are not difficult to come by. Everywhere you look there is a new forex trading system, binary options or sports betting system which claims to guarantee vast profits for a small fee. Online forums are loaded with ideas and systems which are being tested, back-tested and criticised by other users even though the author claims that it really is working for them. The reality is the, due to the hundreds of different ways in which traders can analyse the markets and charts for new opportunities, there are literally thousands of techniques and strategies which can be used to spread bet. From the most basic, such as a simple moving average crossover system to a complex Expert Advisor (EA) these systems come in different varieties with the simple aim of making trading more mechanical and less emotional.

It is the basis of all trading systems that they try to reduce the subjectivity of trading, turning traders into disciplined machines who spot their setup and trade without a second thought. Good trading systems are designed like casinos to work over time, giving the spread better a profitable edge if they continue to trade by the same rules without letting emotions dictate their participation in the markets. The best spread trading systems will work regardless of market conditions and will not expose the trader to huge draw-downs but will ideally show a smooth, upward sloping equity curve over a reasonable period of time.

The truth is that there is no such thing as the perfect spread betting system and, if the was a way to be 100% profitable it would be little known and the chances of finding it would be very small. It would also be very expensive, traders know that once a strategy or trading system becomes too popular it threatens its very existence and those which do work are unlikely to be sold on without a very large price to earnings ratio. However, amongst the less profitable systems spread traders can find some decent systems available inexpensively and even free depending on what and how they wish to trade.

Understanding your ‘trading personality’ is central to adapting to a profitable spread trading system. You may find the best daily trading system in the world but if you know that you can spread bet on a daily chart, as many swing traders do, it will be almost impossible to execute without wanting to interfere with the trade on a shorter timeframe. Therefore, understanding exactly what you are looking for in terms of your trading personality is the first, most important aspect in finding a spread trading system which is going to be successful for you.

So your goal is to find a strategy that suits mentality/timeframe…etc For instance, for a while I decided to trade on a holding period of 6 months to a year or so, but when push came to shove the strategy failed, as a) i wasn’t doing enough trades to satisfy my need of being active, b) because for holding periods over longer timeframe, stops had to be wide, and everytime it went into a loss I used to flap. So instead of having an easier life it ended up more stressful…my personality etc. demands action, so my strategy has to be shorter term to satisfy this, but it can’t be too short term, as when day trading stocks tend to go mental, and end up overtrading and getting possessed by an inner voice who says trade trade trade..

The variation in strategies and systems employed by traders reflects this personal preference. Some traders prefer to use automated trading systems such as robots which generally track the forex markets and automatically enter and exit trades based on inbuilt algorithms whilst others prefer to trade a more manual system wither with a set of indicators or based on some price-action strategy. The preference is a personal one although those who prefer the automated option (who wouldn’t want to make money simply by turning their computer on!) must be aware that these often are only profitable in certain market conditions and trading systems based on these can deplete your account quickly due to a traders trust in their automatic entries.

The most popular spread trading systems are manual systems either using either indicators or some form of price-action analysis. Technical traders also trade systematically based on chart patterns although these can involve a large degree of subjectivity in their interpretation. Candlestick analysis is also a very popular way to create profitable and high-probability spread trading systems. These charts are particularly accurate in pinpointing potential market reversals and the probability of success is increased alongside the use of support and resistance analysis and also momentum indicators such as stochastic oscillators.

When a currency, commodity or share becomes oversold or overbought it will move into the extreme areas of the stochastic oscillator (usually below the default 30 or above the 70 mark on the indicators scale). This tells traders that the asset may be due a reversal as it is currently over or undervalued relative to the momentum behind the most recent price movement. Looking for candlestick or price-action signals at these points can result in a very high-probability trading strategies. Spread trading systems using momentum indicators have the added advantage that momentum always precedes price. Therefore, those spread trading systems which follow momentum will always pre-empt a reversal or correction in price. This is about as far into the future that any spread trading system can claim to see.